Which accounts are affected when inventory is purchased on a credit card?

• A. Only the Cash account is affected
• B. The Credit Card account is credited and the Inventory Asset account is debited
• C. The Inventory Asset account is credited and the Credit Card account is debited
• D. The Checking account is debited and the Accounts Payable is credited

Answer: (B)

When inventory is purchased on a credit card, the correct accounting entries involve debiting the Inventory Asset account and crediting the Credit Card account. This reflects the increase in inventory, which is an asset for the business, while also acknowledging the obligation to pay the credit card company, which is a liability.

By debiting the Inventory Asset account, you record the addition of the goods into your inventory, reflecting an increase in resources that the business will use or sell in the future. Meanwhile, crediting the Credit Card account accurately represents the increase in liabilities since the business now has a debt that needs to be settled with the credit card provider. This dual entry maintains the accounting equation, ensuring that total assets equal total liabilities plus equity.

In contrast, other options do not accurately depict the necessary accounting entries.